One of the central tenets of mainstream economics is Adam Smith's proposition that, given certain conditions, self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand. This deep insight has, over the past two centuries, been taken out of context, contorted, and used as the cornerstone of

Preface ix Chapter 1: In Praise of Dissent 1 Discontent and Discourse 1 Smith's Myth 9 The Lay of the Land 11 On Understanding 13 Chapter 2: The Theory of the Invisible Hand 16 Competition and Social Welfare 16 The Standard Critiques 20 Chapter 3: The Limits of Orthodoxy 24 The Dual Interpretation 24 Evolving Feasible Set 27 Evolving Preference 31 Social Norms and Culture 33 A Comment on Incentive Compatibility 41 On Methodological Individualism 43 On Knowledge 49 Chapter 4: The Economy according to Law 55 Kafka's Invisible Hand 55 Law's Economy: The Standard View 57 The Law as Focal Point 60 Implications of the Focal View of Law 66 A Game-Theoretic Illustration of Law as Focal Point 71 A Research Agenda 73 Chapter 5: Markets and Discrimination 77 Do Free Markets Reduce Discrimination? 77 The Literature 79 The Self-Reinforcement of Productivity 83 The Entrepreneur 85 Toward a New Theoretical Model 89 Appendix: Aptitude Test Administered to Slum Children at Anandan in Calcutta 95 Chapter 6: The Chemistry of Groups 97 Identity and Methodological Individualism 97 The Ingredients of Theory 101 Altruism, Trust, and Development 104 The Janus Face of In-group Altruism 110 The Malignancy of Identity 120 Chapter 7: Contract, Coercion, and Intervention 130 Principle of Free Contract 130 Coercion and Voluntariness 138 The Large Numbers Argument 141 Acts and Rules 148 Multiple Equilibria 153 Domains of Intervention 155 Chapter 8: Poverty, Inequality, and Globalization 157 Governance and the Globe 157 Inequality 158 Some Facts of Globalization 161 Some Analytics of Globalization 165 Inequality and Poverty: The Quintile Axiom 167 Poverty-Minimizing Inequality, with or without Globalization 171 Policy Implications 176 Chapter 9: Globalization and the Retreat of Democracy 180 Democracy in Deficit 180 Globalization and Influence 185 Dollarization and Democracy 187 Democratic Global Institutions 189 Chapter 10: What Is to Be Done? 193 Interpreting the World and Changing It 193 The'Environmental Case' against Inequality 199 Despair and Hope 208 Notes 213 References 235 Index 259

"Deftly, with the carefully chosen anecdote, and the sparing but subtle thought experiment, Kaushik Basu again and again dispels the myth that the invisible hand of free markets leads to the best of all possible worlds—indeed, often far from it. With great wisdom, Beyond the Invisible Hand describes the frequently shocking consequences of the free markets of modern economic theory; it also sets the agenda for where that theory needs to go next."—George A. Akerlof, Nobel Laureate in Economics and coauthor of Animal Spirits and Identity Economics"In this remarkable tour de force, Kaushik Basu scrutinizes the foundational assumptions of economics and asks new and important questions. In his quest for a better and more equitable society, Basu leaves no room for complacency. This thought-provoking book will generate debate in the economics profession and beyond."—Justin Yifu Lin, chief economist, World Bank"Beyond the Invisible Hand poses a fundamental challenge to the way that economists think about many of the most important issues of economic theory and policy. Written for both economists and educated laymen, the book lays out a new vision for economics, one that will stimulate the reader to rethink current practice and give deeper consideration to issues often slighted in contemporary economic analysis. While the reader may not always agree with Basu's prescriptions, the importance of his contribution to the debate over the future of economics cannot be ignored."—Steven G. Medema, University of Colorado, Denver"With standard economic perspectives under question, the need for alternative perspectives is great. Eminently readable and timely, this book is appropriate for general readers and professional economists."—Arjo Klamer, Erasmus University